Issue link: https://read.dmtmag.com/i/550325
26 tobaccoasia / Issue 3, 2015 (July/August) A few years ago, technological know-how of transnational tobacco manufacturers was needed in developing and manufacturing slim cigarettes in China, mainly when it came to develoling blend- type products and those with flowery, fruity, and milky flavors, which, however, could hardly gain fa- vor with Chinese smokers. Under the new situation, the tobacco industry has managed to develop Chi- nese-style flue-cured type of slim products, which have been well received by Chinese smokers. Production Costs Have Been Lowered For tobacco manufacturers, slim cigarettes are an ideal way to apply lean management principles and lower costs of production. For example, with a di- ameter of 5mm, a slim cigarette is about half the size of a regular cigarette, not to mention reduc- tion in the weight. Therefore, slim production in- curs lower consumption of raw materials, and can be an effective approach in response to control over growing of leaf tobacco. And finally, slim production also conforms to the trend of lowering the tar level in tobacco products. For years, the tobacco industry has been trying to lower the tar level and reduce the content of other harmful substances in tobacco products. Slim cigarettes use the perfect medium to drive the tar levels down and increase the content of aroma in tobacco products. In 2015, the tobacco industry continues focus- ing energy on developing and producing the seg- ment as a new point of growth in its endeavor to reduce the content of harmful substances in to- bacco products, upgrade cigarette products, lower production costs, and raise production efficiency, as well as meet the new trend of consumption and increase effective supply. As a result, slim ciga- rettes will continue to grow. From January to April 2015, the output nearly doubled (194%) over the same period last year, with the sales growing by 172%, and with the commercial sales value grow- ing 160% year on year. In the first four months of 2015, the number of slim brands increased to 21. The top three in terms of sales in this period were Nanjing, with 98,900 cases, up 1.6 times year on year; the Yellow Crane Tower, with 41,500 cases, up 72.21%; and Mount Tai, with 15,100 cases, up 84.43% respectively. Because of favorable policy support, the trend of robust development has not changed. It is pre- dicted that over the next 3-5 years, slim cigarettes will acquire the following characteristics: To begin with, market competition will be- come increasingly intense, and existing market shares will undergo fundamental changes. In 2014, the tobacco monopoly administrative authorities approved 27 slim specifications, accounting for 51.9% of the manufactured total. Since the devel- opment of new products takes some time, market- ing will likely stay more or less the same in the 2-3 years. But in the next 3-5 years, the landscape of slims competition is likely to see drastic changes. The existing competitive brands will probably see development due to their marketing advan- tages and change their existing market share. For example, the slim Yellow Golden Leaf (Aishang) – a product of China Tobacco Henan Industrial, ap- proved only on June 10, 2014 – saw its annual sales volume reach 4,900 cases the very year of its approval. Presently, this brand is in the eighth place among all slim cigarettes on sale, showing a trend of robust growth. Secondly, the structure of the slim market will continue to undergo improvement, and the manu- facturing of some high-end products will prob- ably show rapid growth. In 2014, the wholesale price for slims reached RMB167.98 (US$26.70) per carton, or RMB61.85 higher than the average general cigarette wholesale price of RMB106.13 per carton. Last year, the slim cigarette products were all medium- and high-end products. As slim cigarettes are increasingly accepted by consumers, such high-end products as Suyan (Eaglewood), Nan- jing (River Stones), Mount Tai (Buddha's Light Slim), the Yellow Crane Tower (Hard Peacefulness) and Yel- low Golden Leaf (Heaven Fragrance Slim) may show a trend of rapid and robust growth. And finally, both the output and sales volume of slim cigarettes will continue their rapid growth, although the pace is likely to slow down to some extent. In the four-year period from 2010 to 2014, slim cigarette sales grew 117 times, with an annual increment of 159.7%. In 2011 alone, it reached a peak of 273.6%. When it comes to the trend of development, the growing quantity of slim cigarettes shows that production and marketing will continue to grow rapidly over the next 3-5 years. If an average an- nual growth of 30% can be maintained over the next 5 years, output may reach 1 million cases; and assuming the average annual growth of 50%, the output may reach 2 million cases. In this scenario, the segment will cease to be a niche product and become a "mainstream" one. What is just a small market today, may become a huge market tomorrow. Although the market share of slim cigarettes is very small, its develop- ment potential cannot be overestimated. In China, slim cigarette production and marketing is a po- tential new point of economic growth for the to- bacco industry.